Adobe stock sinks on weak Q2 sales forecast: AI demand overhyped?

Shares of Adobe (ADBE) are trading lower ahead of Friday's close after the company released its first-quarter earnings with a weaker-than-expected sales forecast for the current quarter. The company did show a first-quarter revenue of $5.18 billion, beating expectations of $5.14 billion. Though the company announced plans to introduce artificial intelligence features, demand for the remainder of the year throws consumers' interest in the AI products into question.

Yahoo Finance Anchors Josh Lipton and Julie Hyman break down the latest developments for Adobe.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino and updated by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: So let's talk about Adobe here. Not an easy day to belong this name Adobe. You can see is getting hit very hard in today's trade reports and disappoints.

And really, it was about that sales outlook we for the current quarter that was not good enough for the street. Now, heading into this report, remember, some investors had already been concerned about competition from AI focused startups like OpenAI and how that would impact the market and Adobe's competitive positioning.

Now Adobe has responded, for example, with its own AI tool called Firefly. But investors are clearly concerned after this print. So how are Bulls responding, Julie, by the way?

Kirk Materne over Evercore. Kirk, very smart guy. Telling his clients today he sees this pullback as an interesting buying opportunity. He sees most of the benefits from Firefly, he now says, shifting into 2025. Sticks with that outperform rating price target now 650.

JULIE HYMAN: Yeah, I mean, there are definitely some other analysts who are questioning the competition that's out there over at III Bridge. They're talking about that this plays directly into investors narrative of AI-driven uncertainty within the company's operating environment. They point out the analysts there that the other businesses are performing pretty well.

But it's in this AI area specifically that provides that area of uncertainty or lack of clarity for Adobe. By the way, we're looking ahead to NVIDIA's big developers conference coming early next week. Adobe has its own conference--

JOSH LIPTON: Summit.

JULIE HYMAN: --summit exactly, that is coming towards the end of the month, the following week. And so we'll be watching to see if there's any kind of product announcements that may seek to reset the narrative around AI and Adobe.

JOSH LIPTON: Yeah, that is Adobe's big user conference coming up soon here. We've been talking to some Adobe analysts who were kind of excited about that conference. So maybe that's some news we could be expecting there. We'll see what headlines come.

JULIE HYMAN: We will see what headlines come. In the meantime, Adobe not just dragging the shares down. But as I mentioned, seeing kind of a wait on tech more broadly today.